Budget 2019

Low import duty, sops to small firms hurting manufacturing growth

Our Bureau Mumbai | Updated on June 28, 2019 Published on June 28, 2019

(From right) P Manoj, Deputy Editor, BusinessLine with Seshagiri Rao, CFO, JSW Group; Sachchidanand Shukla, Chief Economist, Mahindra Group; and Udit Sheth, Vice-Chairman, Setco Automotive Ltd; at the BusinessLine Count Down to Union Budget 2019 in Mumbai on Friday   -  PAUL NORONHA

The government should consider raising the maximum cap of import duty imposed on steel from 15 per cent to 40 per cent to protect the industry, which is reeling from slowing domestic demand and rising imports, said Seshagiri Rao, Joint Managing Director, JSW Steel, here on Friday.

Though raising the cap does not mean that India will immediately increase the import duty to 40 per cent, it could act as leverage that can be pulled in cases of unrealistic dumping, he added.

With the ongoing trade war between the two largest economies — China and the US — intensifying every other day, almost all the countries have protected their domestic companies by imposing trade barriers.

The contribution of the manufacturing sector to the GDP has been declining for several decades. Notwithstanding the challenges due to inefficient domestic cost structure and regulatory hurdles, the sector is plagued by increasing imports, said Rao.

Last year, about 10 million tonnes of steel were imported into the country, and almost 60 per cent of these came in duty-free from China, Japan and Korea.

On the other hand, Indian companies pay 18 per cent GST, 30 per cent corporate tax a sizeable State government tax, he said.

While the logistics cost in India is 10 per cent higher compared to competing countries, the government reimburses only 2 per cent of the cost on exports under the duty drawback scheme, which are based on the customs duty levied on imports, rather than on the rate of State and municipal taxes, Rao added. The panel discussion was moderated by P Manoj, Deputy Editor, Business Line.

Government subsidy

Sachchindanand Shukla, Chief Economist, Mahindra Group, said that the various sops given to the small and medium enterprises has forced many companies to remain small rather growing in size.

The industry should learn from China, as the cost of operations will come down automatically once the SMEs achieve scale, he added.

The government sops should focus on improving the production of value-added products, rather than encouraging companies to remain small and enjoy subsidies, he said.

Rather than making any big-bang changes, the Budget should focus on policy directions, and give time for the economy to heal from the series of disruptive economic reforms such as the GST, the IBC and implementation of RERA, said Shukla.

Udit Sheth, Vice-Chairman, Setco Automobile, said the ongoing global trade war is a great opportunity for India to push exports, but companies’ expertise to package their skill is “pathetic”.

The government in the Budget should reveal its policy to scrap old systems and encourage the industry to take advantage of the lower interest rate regime, he said.

The Budget should widen the tax net while lowering the rates, which will not only lower the burden on the industry but also help new entrepreneurs, said Sheth.

Published on June 28, 2019
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